Global economies may feel the impact of Covid-19 for a longer period of time even if there is a decline in number of new cases, or a discovery of a vaccine against the virus, said Sanjeev Prasad, co-head, Kotak Institutional Equities. In an interview with Sanam Mirchandani, Prasad said investors would prefer owning large-cap stocks and better quality companies than investing in the broader market.
Now it is spreading to more countries and continents and it still doesn’t look like the spread of Covid-19 is going to slow down anytime soon, which means we could see an impact on the economies of several countries at the same time. This essentially means we could see a synchronised global impact in terms of economic activity and GDP growth. The problem is that people will be very fearful of doing normal activities such as going to malls, restaurants, taking flights, taking public transportation and travelling — activities which involve essentially assembly of people in one area or movement of people. The services sectors such as retailing, tourism and transportation will get impacted significantly. It also means that normal work, office activities and production may get impacted. That is the fear which is building in currently. It is very hard to put any numbers here, but the economic impact could persist for some time. Please keep in mind the fact that the impact will be felt more on the medium and small enterprises, which may not have the capacity to withstand a prolonged economic slowdown. You could potentially see a lot of defaults also from some of the smaller businesses. Things could remain bad for some time and even after that the economic recovery may be fairly gradual. Even though the stock market will respond to any decline in number of new cases and/or discovery of a vaccine against the virus or to the fact that the spread of Covid-19 is being contained, the economic impact will be felt for a longer period of time. If smaller businesses get disrupted, they take longer to recover because their balance sheets and cash flows are not robust enough to withstand a slowdown.
